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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________ to ____________________
Commission file number 0-25983
First Manitowoc Bancorp, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Wisconsin 39-1435359
- --------------------------------------------------------------------------------
(State or other jurisdiction of (IRS employer identification no.)
incorporation or organization)
402 North Eighth Street, Manitowoc, Wisconsin 54220
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
(920) 684-6611
- --------------------------------------------------------------------------------
Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act.)
Yes [X] No [ ]
The number of shares outstanding of registrant's common stock, par value $1.00
per share, at April 30, 2003, was 6,937,268 shares.
FIRST MANITOWOC BANCORP, INC.
TABLE OF CONTENTS
PAGE NO.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited):
Consolidated Statements of Financial Condition -
March 31, 2003 and December 31, 2002 1
Consolidated Statements of Income -
Three Months Ended March 31, 2003 and 2002 2
Consolidated Statements of Changes in
Shareholders' Equity
Three Months Ended March 31, 2003 and 2002 3
Consolidated Statements of Cash Flows -
Three Months Ended March 31, 2003 and 2002 4
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
Item 3. Quantitative and Qualitative Disclosures About Market Risk 15
Item 4. Controls and Procedures 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities and Use of Proceeds 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
Signatures
Certification
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
FIRST MANITOWOC BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
March 31, December 31,
2003 2002
--------- ------------
(In Thousands, Except Share Data)
ASSETS
Cash and due from banks $ 17,621 $ 17,139
Interest-bearing deposits 19,026 18,491
Federal funds sold 22,569 20,459
--------- ---------
Cash and cash equivalents 59,216 56,089
Securities available for sale, at fair value 134,011 135,747
Other investments (at cost) 2,923 2,858
Loans held for sale 6 --
Loans, net 341,838 340,719
Premises and equipment 8,578 8,653
Goodwill 8,968 8,968
Intangible assets 2,157 2,143
Other assets 15,770 10,633
--------- ---------
Total Assets $ 573,467 $ 565,810
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $ 422,681 $ 416,099
Securities sold under repurchase agreements 51,512 50,884
Borrowed funds 36,411 38,138
Other liabilities 6,925 6,405
--------- ---------
Total liabilities 517,529 511,526
--------- ---------
Shareholders' equity:
Common stock -- $1.00 par value; authorized -- 10,000,000 shares;
issued -- 7,583,628 shares 7,584 7,584
Retained earnings 45,941 44,387
Accumulated other comprehensive income 3,113 3,013
Treasury stock at cost--646,360 shares (700) (700)
--------- ---------
Total shareholders' equity 55,938 54,284
--------- ---------
Total Liabilities and Shareholders' Equity $ 573,467 $ 565,810
========= =========
(See accompanying notes to Unaudited Consolidated Financial Statements.)
1
ITEM 1. FINANCIAL STATEMENTS CONTINUED:
FIRST MANITOWOC BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended
March 31,
---------
2003 2002
------ ------
(In Thousands, Except Share Data)
Interest income:
Loans, including fees $5,596 $5,996
Federal funds sold 104 70
Securities:
Taxable 669 971
Tax exempt 766 747
------ ------
Total interest income 7,135 7,784
------ ------
Interest expense:
Deposits 1,996 2,371
Securities sold under repurchase agreements 329 267
Borrowed funds 342 493
------ ------
Total interest expense 2,667 3,131
------ ------
Net interest income 4,468 4,653
Provision for loan losses 200 225
------ ------
Net interest income after provision for loan losses 4,268 4,428
Other income:
Trust service fees 134 130
Service charges 349 293
Insurance Center commissions 410 350
Loan servicing income 205 221
Income on equity investment 86 83
Gain on sales of mortgage loans 421 147
Other 281 249
------ ------
Total other income 1,886 1,473
Other expenses:
Salaries, commissions, and employee benefits 2,198 1,998
Occupancy 241 221
Data processing 268 252
Postage, stationery and supplies 156 126
Advertising 60 125
Outside service fees 128 91
Amortization of goodwill and other intangibles 68 68
Other 573 631
------ ------
Total other expenses 3,692 3,512
------ ------
Income before provision for income taxes 2,462 2,389
Provision for income taxes 561 520
------ ------
Net income $1,901 $1,869
====== ======
Earnings per share: basic and diluted $ 0.27 $ 0.27
(See accompanying notes to Unaudited Consolidated Financial Statements.)
2
ITEM 1. FINANCIAL STATEMENTS CONTINUED:
FIRST MANITOWOC BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(UNAUDITED)
Three Months Ended March 31, 2002
(In Thousands)
Accumulated
Other
Common Retained Comprehensive Treasury
Stock Earnings Income (Loss) Stock Total
-------- -------- ------------- -------- --------
Balance at December 31, 2001 $ 7,584 $ 38,563 $ 1,042 ($ 700) $ 46,489
Comprehensive income:
Net income --- 1,869 --- --- 1,869
Other comprehensive income --- --- 145 --- 145
--------
Total comprehensive income 2,014
Cash dividends ($0.043 per share) --- (295) --- --- (295)
-------- -------- -------- -------- --------
BALANCE AT MARCH 31, 2002 $ 7,584 $ 40,137 $ 1,187 ($ 700) $ 48,208
======== ======== ======== ======== ========
Three Months Ended March 31, 2003
(In Thousands)
Accumulated
Other
Common Retained Comprehensive Treasury
Stock Earnings Income (Loss) Stock Total
-------- -------- ------------- -------- --------
Balance at December 31, 2002 $ 7,584 $ 44,387 $ 3,013 ($ 700) $ 54,284
Comprehensive income:
Net income --- 1,901 --- --- 1,901
Other comprehensive income --- --- 100 --- 100
Total comprehensive income
Cash dividends ($0.05 per share) --- (347) --- --- (347)
-------- -------- -------- -------- --------
BALANCE AT MARCH 31, 2003 $ 7,584 $ 45,941 $ 3,113 ($ 700) $ 55,938
======== ======== ======== ======== ========
(See accompanying notes to Unaudited Consolidated Financial Statements.)
3
ITEM 1. FINANCIAL STATEMENTS CONTINUED:
FIRST MANITOWOC BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
March 31,
---------
2003 2002
-------- --------
(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,901 $ 1,869
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses 200 225
Depreciation of premises and equipment 209 231
Amortization of intangible assets 85 68
Amortization (accretion) of securities, net 43 3
Stock dividends on FHLB stock (67) (34)
Proceeds from sale of mortgage loans 33,120 24,773
Originations of mortgage loans held for sale (32,705) (24,415)
Gain on sales of mortgage loans held for sale (421) (147)
Gain on sale of fixed assets (38) 0
Undistributed income of joint venture (86) (83)
(Increase) decrease in other assets (181) 93
Increase (decrease) in other liabilities 520 (29)
-------- --------
Net cash provided by (used in) operating activities 2,580 2,554
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of securities available for sale 16,768 8,196
Purchases of securities available for sale (14,941) (10,859)
Net decrease (increase) in loans (1,320) 193
Purchases of premises and equipment (134) (46)
Proceeds from sales of premises and equipment 38 0
Acquisition, net of cash acquired 0 0
Bank Owned Life Insurance policies (5,000) 0
-------- --------
Net cash used in investing activities (4,589) (2,516)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits 6,582 (12,726)
Net increase in securities sold under repurchase agreements 628 18,128
Proceeds from advances on borrowed funds 21,747 21,747
Repayment of borrowed funds (23,474) (25,746)
Dividends paid (347) (295)
-------- --------
Net cash provided by financing activities 5,136 1,108
-------- --------
Net increase in cash and cash equivalents 3,127 1,146
Cash and cash equivalents at beginning of period 56,089 39,896
-------- --------
Cash and cash equivalents at end of period $ 59,216 $ 41,042
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 2,206 $ 3,366
Income taxes 5 7
Supplemental schedule of noncash activities:
Investments reclassified as loans $ 0 $ 201
4
ITEM 1. FINANCIAL STATEMENTS CONTINUED:
FIRST MANITOWOC BANCORP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial reporting and with instructions for Form 10-Q and Rule 10-01 of
Regulation S-X. In the opinion of management, these accompanying unaudited
consolidated financial statements contain all adjustments necessary to present
fairly First Manitowoc Bancorp, Inc.'s (the "Corporation's") financial position,
results of its operations, changes in shareholders' equity and cash flows for
the periods presented. All adjustments necessary for the fair presentation of
the consolidated financial statements are of a normal recurring nature. The
results of operations for the interim periods are not necessarily indicative of
the results to be expected for the full year. This report should be read in
conjunction with the Corporation's 2002 annual report on Form 10-K.
In preparing the financial statements, management is required to make estimates
and assumptions that affect the reported amounts of assets and liabilities as of
the date of the balance sheet and revenues and expenses for the period. Actual
results could differ significantly from those estimates.
NOTE 2: The consolidated financial statements include the accounts of all
subsidiaries. The Corporation is a bank holding company that engages in its
business through its sole subsidiary, First National Bank in Manitowoc ("Bank"),
a nationally chartered commercial bank. The Bank has two wholly owned
subsidiaries, FNBM Investment Corp. and Insurance Center of Manitowoc, Inc.
("Insurance Center"). All material intercompany transactions and balances are
eliminated. Certain items in the prior period consolidated financial statements
have been reclassified to conform with the March 31, 2003 presentation.
5
NOTE 3: Investment Securities
The amortized cost and fair values of investment securities available for sale
for the periods indicated are as follows:
Investment Securities
(In Thousands)
March 31, 2003
--------------
Amortized Cost Fair Value
-------------- ----------
U.S. Treasury securities and obligations of U.S. Government
corporations and agencies $ 14,692 $ 14,801
Obligations of states and political subdivisions 67,740 71,945
Mortgage-backed securities 45,822 46,247
Corporate notes 1,004 1,018
-------- --------
Total $129,258 $134,011
======== ========
December 31, 2002
-----------------
Amortized Cost Fair Value
-------------- ----------
U.S. Treasury securities and obligations of U.S. Government
corporations and agencies $ 16,427 $ 16,603
Obligations of states and political subdivisions 62,784 66,355
Mortgage-backed securities 50,915 51,766
Corporate notes 999 1,023
-------- --------
Total $131,125 $135,747
======== ========
NOTE 4: Loan Portfolio
Loans are summarized as follows:
Summary of Loan Portfolio
(In Thousands)
March 31, 2003 December 31, 2002
-------------- -----------------
Percent of Percent of
Amount Total Loans Amount Total Loans
-------- ----------- -------- -----------
Commercial and Agricultural $ 95,034 27.52% $ 90,374 26.26%
Commercial Real Estate 103,955 30.11% 104,042 30.24%
Residential Real Estate 123,172 35.68% 126,122 36.65%
Consumer 19,892 5.76% 20,627 6.00%
Other 3,217 0.93% 2,938 0.85%
-------- ------ -------- ------
Total $345,270 100.00% $344,103 100.00%
====== ======
Less: Allowance for Loan Loss 3,431 3,384
-------- --------
Net Loans $341,839 $340,719
======== ========
6
NOTE 5: Allowance for Loan Losses
Activity in the allowance for loan losses for the periods indicated is as
follows:
For the Three For the Three
Months Ended Months Ended
March 31, March 31,
2003 2002
------------- -------------
(In Thousands)
Balance at beginning of period - December 31, 2002 and 2001 $ 3,384 $ 2,737
Provision charged to expense 200 225
Charge-offs (174) (177)
Recoveries 21 42
-------- ---------
Balance at end of period $ 3,431 $ 2,827
======== =========
NOTE 6: Business Segments
The Corporation, through the Bank and the Bank's branch network, provides a
broad range of financial services to individuals and companies in northeastern
Wisconsin. These services include demand, time, and savings deposits; commercial
and retail lending; ATM processing; trust services; and insurance services.
Operations are managed and financial performance of these services is evaluated
on a Corporate-wide basis. Accordingly, all of the Corporation's operations are
considered by management to be aggregated in one reportable operating segment.
NOTE 7: Per Share Computations
Weighted average shares outstanding were 6,937,268 and 3,468,634 for the three
months ended March 31, 2003 and 2002, respectively.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD-LOOKING INFORMATION
Forward-looking statements have been made by the Corporation in this document
and in documents incorporated by reference that are subject to risks and
uncertainties. These forward-looking statements, which are included in
Management's Discussion and Analysis of Financial Condition and Results of
Operations, describe future plans or strategies and include the Corporation's
expectations of future results of operations. Statements containing certain
terms including, but not limited to the words "believes," "expects,"
"anticipates" or similar expressions constitute forward-looking statements.
Shareholders should note that many factors, some of which are discussed
elsewhere in this document could affect the future financial results of the
Corporation and could cause those results to differ materially from those
expressed in forward-looking statements contained in this document. These
factors include the following:
- operating, legal and regulatory risks;
- economic, political and competitive forces affecting the
Corporation's banking, securities, asset management and credit
services businesses;
- the risk that the Corporation's analyses of these risks and forces
could be incorrect and/or that the strategies developed to address
them could be unsuccessful;
- general market rates;
- general economic conditions;
- changes by the federal government in monetary and fiscal policies;
and
- changes in the composition of our loan portfolio.
7
These factors should be considered in evaluating the forward-looking statements,
and undue reliance should not be placed on such statements. The Corporation does
not undertake and specifically disclaims any obligation to update any
forward-looking statements to reflect the occurrence of anticipated or
unanticipated events or circumstances after the date of such statements.
EARNINGS
Net Income
(Dollars In Thousands, Except Share Data)
- ------------------------------------------------------------------------------
Three Months Three Months
Ended Ended
March 31, March 31,
2003 2002
- ------------------------------------------------------------------------------
Net Income $ 1,901 $ 1,869
Earnings Per Share-Basic & Diluted $ 0.27 $ 0.27
Return on Average Assets 1.36% 1.44%
Return on Average Equity 13.89% 15.62%
- ------------------------------------------------------------------------------
Weighted average shares outstanding were 6,937,268 and 3,468,634 for the three
months ended March 31, 2003 and 2002, respectively.
Net income for the three months ended March 31, 2003 was $1,901,000 compared to
$1,869,000 for the three months ended March 31, 2002, an increase of $32,000, or
17.1%. Interest income decreased $649,000 to $7,135,000 primarily as a result of
a decrease in loan interest due to lower interest rates. Interest expense
decreased $464,000 to $2,667,000 mainly as a result of a decrease in interest
rates paid on deposits. Total other expense increased $180,000 to $3,692,000.
This is a result of increased salaries, commissions and related benefits due to
annual merit increases in wages for employees. Earnings per share for the three
months ended March 31, 2003 was $0.27 compared to $0.27 for the three months
ended March 31, 2002.
Return on average assets (ROA) on an annualized basis for the first quarter of
2003 was 1.36% compared to 1.44% for the first quarter in 2002. Return on
average equity (ROE) on an annualized basis for the first quarter of 2003 was
13.89% compared to 15.62% for the first quarter of 2002.
8
AVERAGE BALANCES, YIELD AND RATES
For the Three Months For the Three Months
Ended March 31, 2003 Ended March 31, 2002
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
--------- ------- ------ -------- -------- ------
(In Thousands) (In Thousands)
ASSETS
Interest-earning assets:
Federal funds sold $ 36, 328 $ 104 1.14% $ 15,862 $ 72 1.81%
Investment securities 142,532 1,923 5.35% 133,241 2,190 6.54%
Loans 342,794 5,723 6.62% 327,816 6,107 7.41%
--------- ------ ---- -------- -------- ----
Total interest-earning assets $ 521,654 $7,750 5.89% 476,919 $ 8,369 6.96%
Other assets 38,993 40,940
--------- --------
Total Assets $ 560,647 $517,859
========= ========
LIABILITIES
Interest-bearing liabilities:
Interest-bearing deposits $ 351,199 $1,996 2.31% $327,825 $ 2,371 2.93%
Repurchase agreements 51,965 329 2.51% 37,554 267 2.82%
Federal funds purchased --- --- 0.00% 24 --- 0.00%
Borrowings 36,434 342 3.72% 45,442 493 4.32%
--------- ------ ---- -------- -------- ----
Total interest-bearing liabilities $ 439,598 $2,667 2.41% $410,845 $ 3,131 3.03%
Demand deposits 59,794 52,995
Other liabilities 6,503 6,155
--------- --------
Total Liabilities $ 505,895 469,995
SHAREHOLDERS' EQUITY 54,752 47,864
--------- --------
Total Liabilities and
Shareholders' Equity $ 560,647 $517,859
========= ========
Net interest income and
interest rate spread $5,083 3.49% $ 5,238 3.93%
Net interest income as
a percent of earning assets (annualized) 3.87% 4.36%
==== ====
Net interest margin is calculated as tax equivalent net interest income divided
by average earning assets and represents the Bank's net yield on its earning
assets. The tax equivalent adjustment was calculated using the statutory federal
income tax rate of 34%.
9
NET INTEREST INCOME AND NET INTEREST MARGIN
Net interest income is the principal source of earnings for a banking company.
It represents the differences between interest and fees earned on the loan and
investment portfolios offset by the interest paid on deposits and borrowings.
The three months ended March 31, 2003 has been characterized by fairly stable
interest rates.
FIRST QUARTER 2003 COMPARED TO FIRST QUARTER 2002:
Net interest income (on a tax equivalent basis) for the three months ended March
31, 2003 decreased by $155,000 or 2.96% compared to the three months ended March
31, 2002. Interest income decreased $619,000 primarily as a result of a decrease
in yields. Total average loans increased from $327,816,000 for the first quarter
of 2002 to $342,794,000 for the first quarter of 2003 while interest yield on
loans increased from 7.41% for the first quarter of 2002 to 6.62% for the first
quarter of 2003. Average investment securities increased from $133,241,000 for
the first quarter of 2002 to $142,532,000 for the first quarter of 2003.
Interest expense decreased $464,000 primarily as a result of a decrease in
interest rates paid. Total average interest-bearing deposits increased from
$327,825,000 for the first quarter of 2002 to $351,199,000 for the first quarter
of 2003 while interest rates paid on interest-bearing deposits decreased from
2.93% for the first quarter of 2002 to 2.31% for the first quarter of 2003 due
to the lower interest rate environment. The interest rate spread, which is the
difference between the average yield on interest earning assets and the average
rate paid on interest bearing liabilities, was 3.49% for the three months ended
March 31, 2003, a decrease of 44 basis points from the interest rate spread of
3.93% for the three months ended March 31, 2002.
Net interest margin for the three months ended March 31, 2003 was 3.95% compared
with 4.45% for the three months ended March 31, 2002.
PROVISION AND ALLOWANCE FOR LOAN LOSSES
For the three months ended March 31, 2003, the Bank charged $200,000 to expense
for the provision for loan loss compared to $225,000 for the three months ended
March 31, 2002.
Allowance for Loan Losses
(In Thousands)
- ---------------------------------------------------------------------------
Three Months Three Months
Ended Ended
March 31, March 31,
2003 2002
- ---------------------------------------------------------------------------
Balance at beginning of period $ 3,384 $ 2,737
Charge-offs (174) (177)
Recoveries 21 42
------- -------
Net (charge-offs) recoveries (153) (135)
Provision for loan losses 200 225
------- -------
Balance at end of period $ 3,431 $ 2,827
======= =======
Ratio of net charge-offs during period to
average loans outstanding during period 0.04% 0.04%
Ratio of allowance for loan losses
to total loans 0.99% 0.86%
- ---------------------------------------------------------------------------
There are several factors that are included in the analysis of the adequacy of
the allowance for loan losses. Management considers loan volume trends, levels
and trends in delinquencies and nonaccruals, current problem credits, national
and local economic trends and conditions, concentrations of credit by industry,
current and historical levels of charge-offs, the experience and ability of the
lending staff, and other miscellaneous factors. Management has determined the
allowance for loan losses is adequate to absorb probable loan losses in its loan
portfolio as of March 31, 2003 based on its most recent evaluation of these
factors.
10
The factor of loan volume trends is based on actual lending activity. The loan
volume trends factor is for estimated losses that are believed to be inherently
part of the loan portfolio but that have not yet been identified as specific
problem credits. The current problem credits factor includes the exposure
believed to exist for specifically identified problem loans determined on a
loan-by-loan basis.
A table showing the allocation of allowance for loan losses is shown below.
Allocation of Allowance for Loan Losses
(In Thousands)
- --------------------------------------------------------------------------------------
March 31, December 31,
2003 2002
- --------------------------------------------------------------------------------------
Specific Problem Loans $2,219 $1,974
Loan Type Allocation:
Commercial & Agricultural 973 1,006
Commercial Real Estate 84 31
Residential Real Estate 49 13
Consumer 91 77
------ ------
1,197 1,127
Unallocated 15 283
------ ------
Total Reserve $3,431 $3,384
====== ======
Ratio of allowance for loan losses to total loans 0.99% 0.98%
Specific problem loans includes the allocation of the allowance for specific
problem credits. Loan volume allocation includes the factor of loan volume
trends, with management's goal for this factor to maintain an adequate loan loss
reserve for outstanding loans less the specifically identified current problem
credits. The allocation of the allowance among the various loan types is based
on the average proportion of the loan types that make up the specific problem
loans. The unallocated portion of the allowance consists of the other factors
included in the analysis because those factors cannot be tied to specific loans
or loan categories.
The allocation and total for the allowance for loan losses is not to be
interpreted as a single year's exposure for loss nor the loss for any specified
time period.
NONPERFORMING LOANS
It is the policy of the Bank to place a loan in nonaccrual status whenever there
is substantial doubt about the ability of a borrower to pay principal or
interest on any outstanding credit. Management considers such factors as payment
history, the nature and value of collateral securing the loan and the overall
economic situation of the borrower when making a nonaccrual decision. Nonaccrual
loans are closely monitored by management. A non-accruing loan is restored to
current status when the prospects of future contractual payments are no longer
in doubt.
Total nonperforming loans at March 31, 2003 were $1,817,000, an increase of
$14,000 from December 31, 2002. The following table presents nonperforming and
nonaccrual loan information as of the dates indicated.
11
Nonperforming Loans
(In Thousands)
- ------------------------------------------------------------------------------------------------------
March 31, December 31,
2003 2002
- ------------------------------------------------------------------------------------------------------
Nonaccrual loans $ 1,670 $ 1,801
Accruing loans past due 90 days or more 147 2
------- --------
Total nonperforming loans $ 1,817 $ 1,803
Nonperforming loans as a percent of loans 0.53% 0.52%
Ratio of the allowance for loan losses to nonperforming loans 189.00% 187.00%
- ------------------------------------------------------------------------------------------------------
OTHER INCOME
Other Income
(In Thousands)
- -----------------------------------------------------------------------------------
Three Months Three Months
Ended Ended
March 31, March 31,
2003 2002
- -----------------------------------------------------------------------------------
Trust service fees $ 134 $ 130
Service charges 349 293
Insurance Center commissions 410 350
Loan servicing income 205 221
Income on equity investment 86 83
Gain on sales of mortgage loans 421 147
Other 281 249
------ ------
Total other income $1,886 $1,473
- -----------------------------------------------------------------------------------
FIRST QUARTER 2003 COMPARED TO FIRST QUARTER 2002:
Other income for the first quarter of 2003 was $1,886,000 compared to $1,473,000
for the first quarter of 2002, an increase of $413,000 or 28%. An increase in
the number of residential mortgage loans and refinancings processed and sold to
the FNMA secondary market accounted for an increase of $274,000 in gains on
sales of mortgage loans in the quarter ended March 31, 2003. Service charges on
deposit accounts and Insurance Center commissions also contributed to the
increase.
OTHER EXPENSES
Other Expenses
(In Thousands)
- -----------------------------------------------------------------------------------
Three Months Three Months
Ended Ended
March 31, March 31,
2003 2002
- -----------------------------------------------------------------------------------
Salaries, commissions, and employee benefits $2,198 $1,998
Occupancy 241 221
Data processing 268 252
Postage, stationery and supplies 156 126
Advertising 60 125
Outside service fees 128 91
Amortization of goodwill and other intangibles 68 68
Other 573 631
------ ------
Total other expenses $3,692 $3,512
- -----------------------------------------------------------------------------------
12
FIRST QUARTER 2003 COMPARED TO FIRST QUARTER 2002:
Other expense for the first quarter of 2003 was $3,692,000 compared to
$3,512,000 for the first quarter of 2002, an increase of $180,000, or 5.1%. The
increase is due primarily to annual merit increases for employees, including
increases in salaries, commissions and related benefits.
INCOME TAXES
The effective tax rate for the three months ended March 31, 2003 was 22.7%
compared to 21.8% for the three months ended March 31, 2002. The increase in
effective tax rates in the period is the result of taxable income increasing at
a greater rate than tax exempt income for the period ended March 31, 2002.
BALANCE SHEET
MARCH 31, 2003 COMPARED TO DECEMBER 31, 2002
The Corporation's total assets increased from $565.8 million at December 31,
2002 to $573.5 million at March 31, 2003. Loans increased $1.1 million, while
securities held for investment purposes decreased $1.7 million. Federal Funds
sold increased $2.1 million. The increase in other assets is due to the purchase
of a $5 million life insurance policy on certain officers of the bank.
Deposits increased $6.6 million to $422.7 million at March 31, 2003 from $416.1
million at December 31, 2002, due to increases in non-interest bearing deposits
and certificates of deposit.
LIQUIDITY MANAGEMENT
Liquidity describes the ability of the Corporation to generate adequate amounts
of cash to meet financial obligations that arise out of the ordinary course of
business. Liquidity is primarily needed to meet borrowing and deposit withdrawal
requirements of the customers of the Bank and to fund current and planned
expenditures. The Bank maintains its asset liquidity position internally through
cash and cash equivalents, short term investments, the maturity distribution of
the investment portfolio, loan repayments and income from earning assets. A
substantial portion of the investment portfolio contains readily marketable
securities that could be converted to cash immediately. On the liability side of
the balance sheet, liquidity is affected by the timing of maturing liabilities
and the ability to generate new deposits or borrowings as needed. Other sources
are available through borrowings from the Federal Reserve Bank, the Federal Home
Loan Bank and from lines of credit approved at correspondent banks. Management
knows of no trend or event which will have a material impact on the Bank's
ability to maintain liquidity at adequate levels.
13
CAPITAL RESOURCES AND ADEQUACY
Capital
(Dollars In Thousands, Except Share Data)
- -----------------------------------------------------------------------------------------
March 31, December 31,
2003 2002
- -----------------------------------------------------------------------------------------
Shareholders' Equity $55,938 $54,284
Total capital (to risk-weighted assets):
Consolidated 12.6% 12.3%
First National Bank in Manitowoc 12.3% 12.0%
Tier 1 capital (to risk-weighted assets):
Consolidated 11.7% 11.4%
First National Bank in Manitowoc 11.4% 11.1%
Tier I capital (to average assets):
Consolidated 7.8% 7.7%
First National Bank in Manitowoc 7.6% 7.5%
Dividends Per Share-This Quarter $ 0.050 $ 0.054
Dividends Per Share-Year to Date 0.050 0.183
Earnings Per Share-This Quarter $ 0.270 $ 0.220
Earnings Per Share-Year to Date 0.270 1.020
Dividend Payout Ratio-This Quarter 18.52% 24.55%
Dividend Payout Ratio-Year to Date 18.52% 17.94%
- -----------------------------------------------------------------------------------------
Total shareholders' equity increased $1.7 million from $54.2 million at December
31, 2002 to $55.9 million at March 31, 2003. Net income for the three month
period ending March 31, 2003 was $1.9 million.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios of total and Tier 1
capital to risk-weighted assets, and of Tier 1 capital to average assets.
Management believes, as of March 31, 2003 and December 31, 2002, that the Bank
meets all capital adequacy requirements to which it is subject.
As of March 31, 2003, the Bank's and the Corporation's ratio of Tier 1 capital
to risk-weighted assets was 11.4% and 11.7%, respectively. As of March 31, 2003,
the Bank's and the Corporation's ratio of total capital to risk-weighted assets
was 12.3% and 12.6%, respectively. In addition to risk-based capital, banks and
bank holding companies are required to maintain a minimum amount of Tier 1
capital to total assets, referred to as the leverage capital ratio, of at least
4.0%. As of March 31, 2003, the Bank's and the Corporation's leverage capital
ratio was 7.6% and 7.8%, respectively.
As of March 31, 2003 and December 31, 2002, the most recent notification from
the Office of the Comptroller of Currency and the Federal Deposit Insurance
Corporation categorized the Bank as well capitalized and adequately capitalized,
respectively, under the regulatory framework for prompt corrective action. To be
categorized as well capitalized, the Bank must maintain minimum total
risk-based, Tier 1 risk-based, and Tier 1 leverage ratios. There are no
conditions or events since such notifications that management believes have
changed the institution's category.
14
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There has been no material change to the market risk position from that
disclosed as of December 31, 2002 in the Corporation's 2002 Form 10-K Annual
Report.
ITEM 4. CONTROLS AND PROCEDURES
An evaluation of the Corporation's disclosure controls and procedures (as
defined in Section 13(a)-14(c) of the Securities Exchange Act of 1934 (the
"Act") was carried out under the supervision and with the participation of the
Corporation's Chief Executive Officer, Chief Financial Officer and several other
members of the Corporation's senior management within the 90-day period
preceding the filing date of this quarterly report. The Corporation's Chief
Executive Officer and Chief Financial Officer concluded that the Corporation's
disclosure controls and procedures as currently in effect are effective in
ensuring that the information required to be disclosed by the Corporation in the
reports it files or submits under the Act is (i) accumulated and communicated to
the Corporation's management (including the Chief Executive Officer and Chief
Financial Officer) in a timely manner, and (ii) recorded, processed, summarized
and reported within the time periods specified in the SEC's rules and forms.
In the quarter ended March 31, 2003, the Corporation did not make any
significant changes in, nor take any corrective actions regarding, its internal
controls or other factors that could significantly affect these controls.
FIRST MANITOWOC BANCORP, INC.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Neither the Corporation nor its subsidiary is involved in any pending
legal proceedings involving amounts in which management believes are material to
the financial condition and results of operations of the Corporation.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
Exhibit Number Description of Exhibit
- -------------- ----------------------
(3)(1) Articles of Incorporation of First Manitowoc Bancorp, Inc., incorporated by reference to
Exhibit (3)(1) to Report on Form 10 filed May 5, 1999. Amendment filed as Exhibit (3)(2)
to Form 10-Q filed August 14, 2000.
(3)(2) Amended and Restated Bylaws of First Manitowoc Bancorp, Inc., incorporated by reference
to Exhibit (3)(2) to Report on Form 10-K filed March 18, 2003.
(10)(1) First National Bank in Manitowoc Profit Sharing Plan, filed herewith.
(99)(1) Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
(99)(2) Item 3 of Part of First Manitowoc Bancorp, Inc.'s Report on Form 10-K filed March 18,
2003, hereby incorporated by reference.
b) Reports on Form 8-K:
There were no reports on Form 8-K filed for the quarter ended March 31,
2003.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
FIRST MANITOWOC BANCORP, INC.
(Registrant)
Date: May 15, 2003 /s/ Thomas J. Bare
------------------
Thomas J. Bare
Chief Executive Officer and Chief Financial Officer
16
CERTIFICATION
I, Thomas J. Bare, certify that:
1. I have reviewed this quarterly report on Form 10-Q of First Manitowoc
Bancorp, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: May 15, 2003 /s/ Thomas J. Bare
------------------------------------
Thomas J. Bare
Chief Executive Officer
/s/ Thomas J. Bare
------------------------------------
Thomas J. Bare
Chief Financial Officer
17
a) Exhibits:
EXHIBIT INDEX
Exhibit Number Description of Exhibit
- -------------- ----------------------
(3)(1) Articles of Incorporation of First Manitowoc Bancorp, Inc., incorporated by reference to
Exhibit (3)(1) to Report on Form 10 filed May 5, 1999. Amendment filed as Exhibit (3)(2)
to Form 10-Q filed August 14, 2000.
(3)(2) Amended and Restated Bylaws of First Manitowoc Bancorp, Inc., incorporated by reference
to Exhibit (3)(2) to Report on Form 10-K filed March 18, 2003.
(10)(1) First National Bank in Manitowoc Profit Sharing Plan, filed herewith.
(99)(1) Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
(99)(2) Item 3 of Part of First Manitowoc Bancorp, Inc.'s Report on Form 10-K filed March 18,
2003, hereby incorporated by reference.
18